The new year brought a cautious start for European stock markets as the FTSE 100 and other major indices faced declines on Tuesday morning. A wave of fresh economic data highlighted inflationary pressures and sluggish retail performance, contributing to the sell-off.
FTSE 100 Performance
The FTSE 100 (^FTSE) fell by 0.5% in early trading, reflecting investor concerns over disappointing retail data and rising costs. Despite the overall decline, fashion retailers Next (NXT.L) and JD Sports (JD.L) emerged as top risers, buoyed by optimism within the sector. On the downside, Tesco (TSCO.L) and Sainsbury's (SBRY.L) suffered losses of approximately 1.8%, following lackluster retail sales figures from the British Retail Consortium (BRC).
European Markets Follow Suit
Across the continent, major indices mirrored the cautious sentiment:
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Germany’s DAX (^GDAXI) dropped 0.2%, while France’s CAC 40 (^FCHI) also fell by 0.2%, as investors awaited flash inflation readings for the Eurozone.
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The pan-European STOXX 600 (^STOXX) recorded a 0.2% decline, highlighting the broad-based nature of the market downturn.
Golden Quarter Falls Short for UK Retail
Retailers had hoped for a strong "Golden Quarter" in the three months leading up to December. However, the BRC’s data revealed modest sales growth of just 0.4% year-on-year, falling short of expectations.
Food sales provided a glimmer of resilience, increasing by 1.7% year-on-year in December. However, this was significantly below the 6.3% growth seen in December 2023 and trailed both the three-month average growth of 2.1% and the 12-month average growth of 3.3%.
Inflation and Regulatory Pressures Loom Large
Helen Dickinson, CEO of the BRC, offered a sobering outlook for the year ahead. “While we project sales growth to average 1.2% in 2025, this is below the projected shop price inflation of 1.8%,” Dickinson said. “This means volumes are likely to fall this year, all while the regulatory and tax burden on retailers will increase costs by £7bn from rising national insurance contributions, increasing national living wage, confirmed in the budget, and new packaging levies.”
Outlook for 2025
As retailers and investors navigate these challenges, the outlook for 2025 remains cautious. Persistent inflation, regulatory costs, and subdued consumer spending are likely to shape market trends. For traders, the current environment underscores the importance of staying informed and leveraging robust trading strategies to navigate volatility.
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